Legislature(1997 - 1998)

02/02/1998 01:30 PM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
              SENATE JUDICIARY COMMITTEE                                       
                   February 2,1998                                             
                      1:30 p.m.                                                
MEMBERS PRESENT                                                                
Senator Robin Taylor, Chairman                                                 
Senator Drue Pearce, Vice-Chairman                                             
Senator Mike Miller                                                            
Senator Sean Parnell                                                           
Senator Johnny Ellis                                                           
COMMITTEE CALENDAR                                                             
SENATE BILL NO. 199                                                            
"An Act relating to charitable gaming and to gaming on state                   
ferries; and providing for an effective date."                                 
PREVIOUS SENATE COMMITTEE ACTION                                               
No previous action to record.                                                  
WITNESS REGISTER                                                               
Mr. Stan Filler                                                                
PO Box 777                                                                     
Sitka, Ak 99835                                                                
   POSITION STATEMENT: Supported SB 199                                        
Ms. Deborah Vogt                                                               
Department of Revenue                                                          
PO Box 114000                                                                  
Juneau, Ak 99811-0400                                                          
   POSITION STATEMENT: Commented on SB 199                                     
Mr. Bob Bartholomew                                                            
Department of Revenue                                                          
PO Box 114000                                                                  
Juneau, Ak 99811-0400                                                          
   POSITION STATEMENT: Commented on SB 199                                     
Mr. Jack Griffin                                                               
Homer, Ak                                                                      
   POSITION STATEMENT: Supported SB 199                                        
Mr. Carroll Raney                                                              
918 W. 14th Avenue                                                             
Anchorage, Ak 99810                                                            
   POSITION STATEMENT: Commented on SB 199                                     
Mr. Edward M. James                                                            
Eddie's Sports Bar                                                             
3911 Pawn Place                                                                
Anchorage, Ak 99508                                                            
   POSITION STATEMENT: Supported SB 199                                        
Mr. Dennis Poshard                                                             
Department of Transportation                                                   
3132 Channel Drive                                                             
Juneau, Ak 99801                                                               
   POSITION STATEMENT: Commented on SB 199                                     
ACTION NARRATIVE                                                               
TAPE 98-4, SIDE A                                                              
Number 001                                                                     
CHAIRMAN ROBIN TAYLOR called the Judiciary Committee meeting to                
order at 1:37 p.m. and noted the presence of all members.                      
         SB 199 - CHARITABLE GAMING & GAMING ON FERRIES                        
MR. JOE AMBROSE, staff to Senator Taylor came forward to present               
the sponsor statement for SB 199. He stated the main idea behind               
the bill was making charitable gaming more accountable. He said the            
bill would authorize the use of video gaming machines capable of               
being linked to a central computer system. He said this would                  
greatly increase our ability to account for the millions of dollars            
spent annually on charitable gaming including pull tabs. He said               
one of the major concerns expressed over the use of pull tabs is               
the lack of accountability and susceptibility to theft, fraud and              
other criminal activity. Many charities appear to be receiving less            
than their fair share, according to the sponsor.                               
MR. AMBROSE said this bill directs proceeds differently than                   
currently done with pull tabs. It gives 30 percent to the charity              
permittee; 30 percent to the vendor; 15 percent to the state and 25            
percent to the municipality in which the machine is located. If the            
machine is located in an unorganized borough, that share would go              
to the state. MR. AMBROSE said the bill contains a provision                   
allowing the Alaska Marine Highway to be licenced for video gaming             
if they so desire. He concluded that it is the sponsor's conviction            
that as Alaska's charities become familiar with video gaming and               
it's accountability, they will phase out pull tabs in favor of this            
new technology.                                                                
SENATOR MILLER asked if he believed these games will replace pull              
MR. AMBROSE replied that is the goal. The issue was discussed in               
the last legislature but there was concern expressed by the smaller            
communities and charities. He thinks even these groups will                    
eventually opt to run the new games due to better accountability               
and simpler administration.                                                    
SENATOR ELLIS asked if the bill covered video poker or video slots             
or both.                                                                       
MR. AMBROSE said strictly video poker, video keno and blackjack,               
not slot machines.                                                             
SENATOR ELLIS asked if those games were specifically mentioned in              
the legislation or if other types of gaming could be done in this              
format. He said he has heard that casinos are moving toward video              
gaming for all types of games of chance.                                       
MR. AMBROSE said the bill generally referred to keno, blackjack and            
poker but allows the department to regulate the types of games                 
MR. STAN FILLER, from Sitka representing the Cabaret, Hotel,                   
Restaurant and Retailers Association (CHARR), supported the bill.              
He cited charitable gaming as an excellent source of revenue for               
communities. He quoted $22.4 million as the total proceeds from                
gaming in 1995 and said this bill will help generate even higher               
proceeds for charities and nonprofits. He said eventually all                  
groups will benefit from the increased accountability of these                 
games. In view of decreasing funding from the state and federal                
governments, he sees this as a long term revenue source for                    
communities in the future. He said revenue would be provided to                
local businesses, local government, and the State of Alaska. He                
estimated the first year revenue at 107 million dollars with a 20              
percent increase the following year. He said this was a                        
conservative estimate and added that every state that has                      
implemented this type of gaming has by far surpassed their original            
expectations. He restated the point that the state needs new                   
revenue sources due to lower oil prices. He said this would provide            
that necessary funding without the imposition of a state income or             
sales tax. He said this bill will also allow the Marine Highway to             
operate these games and retain 100 percent of the revenue                      
generated. He said the state currently has no direct means of                  
profiting from the visitor industry and this would help capture                
some of the money he believes is leaving the state via on-line                 
gaming. He said on-line vendors  have little or no accountability              
and there is no guarantee of scrupulous practices. Implementing                
this bill will ensure a safe gaming environment for Alaskans and               
substantially benefit Alaskan businesses. He said the design of                
these games prevents tampering and provides 100 percent                        
accountability for all transactions and revenues. He said these                
games would be restricted to licenced beverage dispensaries and                
adults over the age of 21. Rural areas could set up a secure                   
station for these games if there was no licenced location                      
available. He concluded that these conditions would prevent minors             
from accessing these machines and the overall security and                     
accountability of gaming would be enhanced. Mr. Filler repeated                
that this bill would provide much needed revenue for all groups                
concerned and urged the support of the committee.                              
CHAIRMAN TAYLOR responded to SENATOR ELLIS'S earlier question,                 
saying only games authorized by the department could be played.                
SENATOR PEARCE pointed out that on page 17, section 26, line 17 the            
bill allows keno, video poker and blackjack. She said it seems                 
these particular games would have to be allowed. CHAIRMAN TAYLOR               
CHAIRMAN TAYLOR asked the witness what the proceeds of video gaming            
are used for in the State of Oregon.                                           
MR. FILLER believed it was education.                                          
CHAIRMAN TAYLOR inquired about other states but MR. FILLER was                 
SENATOR PARNELL was curious about one of the goals of the bill. He             
asked if CHARR had a position on the supplement versus replacement             
of pull tabs by these new games.                                               
MR. FILLER said they had no position but their main concern was                
improving accountability in regards to all gaming activities within            
the state.                                                                     
SENATOR ELLIS was astounded by the figures quoted on growth in                 
gaming in Oregon. He asked for information behind this explosion in            
growth, wondering if it might be attributed to a population                    
increase or maybe a proliferation of these games in liquor                     
MR. FILLER thought it may be due to an increase in tourism. In his             
town, more than 30 percent of sales tax is paid by visitors to the             
community and he imagines this also happens in other states.                   
SENATOR ELLIS asked MR. FILLER if he was familiar with studies                 
suggesting participation in gaming is limited to a small segment of            
the population. The witness was not familiar with the studies.                 
CHAIRMAN TAYLOR stated pull tabs are just about everywhere. He                 
asked if he was operating a pull tab game and was required by law              
to keep track of pay outs from a particular jar (as is the case                
now), when the tickets dwindle and the pay out is not complete,                
what prevents him from giving this information to a friend? MR.                
FILLER knew nothing to prevent this.                                           
SENATOR PARNELL asked if there was anything in the bill that would             
stop this from happening. CHAIRMAN TAYLOR said this is a major                 
problem in the accountability and enforceability of the old system.            
He said this would not be possible in the new system. He added                 
there probably are  ways in which the games can be manipulated now             
that hadn't even been discussed.                                               
MR. FILLER agreed that there might be problems but, as it is now,              
the charity gets their money up front and any money lost will be               
his. He added that if anything improper occurs with the game he                
could lose his liquor licence. He repeated his earlier point that              
it is a good revenue-generating enterprise for many communities.               
MR. JACK GRIFFIN, from Anchorage and Homer, told the chairman that             
California gaming proceeds go to education. He believed the                    
increase in gaming in other states is largely due to a decrease in             
illegal gaming. He said there are 25 - 30 illegal, after-hours                 
gaming parlors in Anchorage alone.  He said these places do not                
generate any money for the state nor the federal government and he             
believes if this bill passes the increase in gaming, and                       
subsequently revenue, would be immediate and substantial.                      
CHAIRMAN TAYLOR asked if people in Alaska can use a credit card to             
place bets in other states via the Internet.                                   
MR. GRIFFIN said he had read about this in the Anchorage paper but             
did not know about it firsthand.                                               
SENATOR ELLIS asked about the term "video lottery machine,"                    
wondering if the machines could play several games and perhaps                 
eventually be linked for the purpose of a statewide lottery.                   
CHAIRMAN TAYLOR replied that he did not know enough about the                  
technology to answer. He said his sole purpose for the bill was to             
plug the cracks in the system and clean up gaming so the money ends            
up where it is intended. He said he is firmly opposed to expansion             
but wants to see the present system cleaned up.                                
MR. JACK GRIFFIN said in California the state lottery has its own              
state lotto machines. He believes with today's sophisticated                   
technology it might be possible to hook a game like this into a                
statewide lottery.                                                             
SENATOR ELLIS clarified that he was not suggesting this should                 
happen, only wondering if it was possible. He asked about MR.                  
GRIFFIN'S comment regarding illegal gambling. He asked if his                  
testimony was that these activities would decrease if this bill                
passes or if he thought illegal gambling would disappear.                      
MR. GRIFFIN believed the activities would go down, but not go away.            
Number 380                                                                     
MS. DEBORAH VOGT, Deputy Commissioner for the Department of Revenue            
came forward and expressed concern with the administration of this             
program. She said the additional duties that would be placed on the            
department would be hard to meet with their current diminished                 
resources. She feared having to decide what types of games would be            
permitted since she sees high stakes on all sides. She said her                
division is primarily a tax division now and she does not see it as            
a policy making division. The fiscal note submitted does not set               
out different expenses but reflects the increase in personnel she              
envisions necessary to deal with this, perhaps four people. She                
feels the Legislature should set the agenda on what types of games             
should be played and other policy decisions. She does not believe              
this to be the role of the Department of Revenue.                              
MS. VOGT questioned if this would result in a substantial increase             
in gambling in the state or just a shift from one method to                    
another. She agreed with CHARR that other states have seen a                   
dramatic increase in revenue and commented that we currently have              
the highest per capita gaming in the U.S. She thinks this bill                 
would push revenue even higher. She brought up the effect on Indian            
gaming and believed it was a concern better answered by the                    
Department of Law. She said gaming was limited in the state in                 
order to keep out big casinos. CHAIRMAN TAYLOR said he did that.               
CHAIRMAN TAYLOR asked how many people are currently employed to                
take care of pull tabs. MS. VOGT responded four but MR. BOB                    
BARTHOLOMEW, also from the department, interjected it was in fact              
seven people and MS. VOGT agreed.                                              
CHAIRMAN TAYLOR said the projections show a significant increase in            
gaming revenue and asked if the department believed they were                  
getting an accurate count on all the gaming going on in the state.             
MS. VOGT replied they have a good handle on charitable gaming but              
knew about illegal gaming only through rumor and anecdote. She said            
they would like to do a closer audit on pull tabs and impose                   
tighter controls but granted there is the opportunity for abuses.              
CHAIRMAN TAYLOR said the original legislation he introduced a few              
years ago wiped out pull tabs entirely and asked how MS. VOGT would            
feel about a sunset provision that faded them out over the next few            
MS. VOGT it would be easier to administer and it was a decision for            
the people on his side of the table.                                           
CHAIRMAN TAYLOR asked what other types of clean up she'd like to               
see within the system and MS. VOGT responded that she would support            
the efforts of SENATOR SHARP for simplification but would like to              
see his bill limited to that alone. She reasoned that some of                  
CHAIRMAN TAYLOR'S colleagues would like to see gaming limited,                 
where others would like to see expansion and she is only after                 
MR. CARROLL RANEY said he thinks of the revenue for municipalities             
and schools. He sees this as a controlled vehicle to fund charities            
and municipalities and provide relief for taxpayers.                           
MR. EDWARD JAMES, representing Eddie's Sports Bar, agreed with the             
previous comments and said it is a bill where everyone is a winner.            
He said it has worked in Oregon and with declining oil revenues it             
is something we should look at.                                                
SENATOR PARNELL asked how much a game would cost an establishment              
to install.                                                                    
MR. JAMES estimated perhaps $2,000 - $3,000.                                   
SENATOR PARNELL asked if he currently operates pull tabs and MR.               
JAMES said he does. SENATOR PARNELL then asked if he had a problem             
replacing them with video machines if that was the choice  and  MR.            
JAMES replied they would complement each other but would prefer the            
machines as they are self-contained.                                           
SENATOR PARNELL asked how many bowls of pull tabs he has and MR.               
JAMES replied one box per bartender.                                           
MR. DENNIS POSHARD, representing the Department of Transportation,             
came forward and CHAIRMAN TAYLOR asked if the Marine Highway had               
looked at this bill as a means to generate revenue. MR. POSHARD                
replied that they had and were in the process of researching the               
estimated profit as well as the costs of buying or leasing the                 
machines. CHAIRMAN TAYLOR suggested it might provide additional                
revenue. He said cruise ships have them and it is doubtful they are            
losing money on them. He restated his primary concern to clean up              
the whole system and said a permittee may contract up to five                  
games, ten machines each with certain limitations.                             
SENATOR PEARCE asked for the Department of Law and MR. VINCE USERA,            
representing the department came forward to answer her question                
about Indian gaming. MR. USERA stated that the Indian Gaming                   
Regulatory Act (IGRA) mandated the State must negotiate in good                
faith to allow recognized Indian tribes on Indian lands to run any             
game available to other groups in the state. He said it was                    
difficult to be precise and the question was somewhat up in the air            
due to the Indian Country issue. He said the prior enforcement                 
mechanism for IGRA was federal court but this has been negated by              
the Supreme Court in the Seminole decision. He said the Department             
of the Interior is currently promulgating regulations that would               
allow the Secretary of the Interior to endorse a compact if the                
state refused to do so. He said this has the potential for forcing             
the state to negotiate for these games. He said, for the most part,            
tribes would not have limitations on the number of games, they                 
would also have a better chance for large-scale capitalization and             
this may result in large casinos being set up.                                 
TAPE 98-4                                                                      
SIDE B                                                                         
Number 001                                                                     
SENATOR PEARCE clarified that the Secretary of the Interior is in              
the process of setting up regulations that usurp the state                     
authority to control casino gambling?                                          
MR. USERA replied yes, but if certain types of games are not                   
allowed at all they would also be prohibited to the Indian tribes.             
It is only in the case that a type of game was allowed to another              
group that the state would have to negotiate in good faith with the            
Indian tribes.                                                                 
SENATOR PEARCE asked if the fact that the legislation is permissive            
might allow the Secretary of Interior to say that the legislature              
has not limited gaming and therefore casinos would be permitted.               
MR. USERA said that case law supports the proposition that                     
negotiation would only be necessary in games already allowed.                  
SENATOR PEARCE asked if it was all right for the department to do              
the allowing. MR. USERA said that was not an issue as long as it               
was allowed.                                                                   
CHAIRMAN TAYLOR explained it as a question of equal protection. MR.            
Usera agreed, repeating it would not trigger the allowance of any              
other types of games. CHAIRMAN TAYLOR said he was working under                
that understanding and did not want to cause any expansion, only to            
clean up the existing system.                                                  
MR. USERA said the last time this was brought up the Seminole case             
had not been decided. Now that the case has been decided, the focus            
is on the possible actions by the Secretary of the Interior, not               
the Supreme Court.                                                             
SENATOR PEARCE asked who would own the machines and if the                     
permittee could simply go out and buy them. She fears some                     
charities may be less than enamored with that idea. CHAIRMAN TAYLOR            
replied that if you consider the returns, the machines pay for                 
themselves fairly quickly. SENATOR PEARCE noted that the percentage            
return to the organization is dramatically less than before, 30                
percent versus 70 percent.                                                     
CHAIRMAN TAYLOR said he believes that when the numbers are run they            
will make more money. He pointed to the lack of accountability                 
within the system now and said we have somewhat of a handle on it              
only by listening to testimony. He thinks the new system with                  
machines keeping track of all the money will be better and the                 
public will be better off. He said he always considered pull tabs              
paper slot machines and would like to see them  all shut down in               
favor of this new, simple, technology that won't require five or               
six more people to administer.                                                 
CHAIRMAN TAYLOR supported MS. VOGT'S clean up measures and wants to            
see the fine tuning happen so "everyone gets first count" as one               
witness said.                                                                  
MR. JOE RILEY, an Anchorage bar owner, recounted how in 1959 it was            
declared there would be no gambling in Alaska but the next day                 
exceptions were made for the Nenana Ice Classic, and then churches             
and charitable organizations. He said he doesn't sell pull tabs. He            
does not like them as they have too many loose ends. He thinks by              
the time the charity gets the money from the game it has dwindled              
from the original amount.                                                      
MR. JACK LEWIS, representing the Anchorage Restaurant and Beverage             
Association and owner of the Sourdough Mining Company and the                  
Peanut Farm, passed out brochures about the Oregon lottery. He                 
argued that we now has information we did not previously have                  
regarding the track record of this type of gaming. He pointed out              
that in negotiations with the oil companies, Alaska has a weak                 
position. He believes if we have other sources of revenue we will              
hold a better bargaining position in negotiations of our natural               
resources. He concluded that other states have exceeded their                  
projected revenues in every case.                                              
SENATOR PEARCE stated she has always supported the use of machines             
to improve accountability but had never envisioned the charities               
having to buy them. She made a conceptual amendment to use the                 
video lottery machines to replace pull tabs. CHAIRMAN TAYLOR asked             
if there were any objections and if SENATOR PEARCE wished to place             
a time frame on the amendment.                                                 
SENATOR PEARCE said January 1st, 1999. CHAIRMAN TAYLOR asked if                
everyone understood the amendment. SENATOR ELLIS said the committee            
had not heard from a single charitable organization and this                   
amendment might change their position on whether or not they                   
support the bill. He said a large capital investment would be                  
necessary and he would not feel comfortable voting on this                     
amendment until he had heard from them. He pointed out they had                
already heard from bar owners, the state and other supporters but              
not from these people who would also be directly affected by the               
CHAIRMAN TAYLOR agreed it will cause a reduction in opportunity                
since it requires a person be over 21 and in a licenced                        
establishment. He said theses issues were raised two years ago and             
it is true that a shrinkage of opportunity may occur. He also                  
agreed the cost will increase up front but he thinks this can be               
resolved between the permittee and the licenced establishments to              
the satisfaction of both parties.                                              
SENATOR ELLIS said he believed CHAIRMAN TAYLOR to be familiar                  
enough with the amendment to know that this will eliminate pull                
tabs in certain places. He added that even so the revenue, as well             
as the potential for growth, will be much greater from these video             
machines. He thinks the state will see a net increase in the gaming            
CHAIRMAN TAYLOR said there is no way to gauge that as no other                 
state has eliminated pull tabs and replaced them with machines. He             
believes that the current system is fairly sloppy and the                      
charities, municipalities and the state  will see a greater benefit            
from the new system. He does not know if this will be due to an                
exchange of dollars from one mode of gaming to another or an                   
increase in gaming overall.                                                    
CHAIRMAN TAYLOR asked if there was sustained objection to the                  
conceptual amendment.                                                          
SENATOR ELLIS maintained his objection, saying it would be an undue            
burden on the charities to switch from pull tabs to machines that              
may cost $2,000 - $3,000. He said he would withdraw his objection              
if they heard from the charitable community that they would be                 
amenable to this  change.                                                      
SENATOR PEARCE said, all things considered, the cost of the                    
machines  would be covered for active charities.                               
CHAIRMAN TAYLOR called for the roll and the amendment passed four              
to one.                                                                        
CHAIRMAN TAYLOR said this legislation would next move to Finance.              
SENATOR MILLER made a motion to move SB 199 as amended out of                  
committee with individual recommendations. Without objection, the              
bill passed from committee.                                                    

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